Tomkins shares perk up as Hutchings steps down

New chairman David Newlands will refocus the conglomerate towards its core businesses, but denies the changes are due to shareholder unease at over-diversification

By Rob Coppinger

Tomkins, the last of the UK’s old-style manufacturing conglomerates, saw its chairman of 17 years step down last week, following shareholder pressure over the company’s recent poor performance. Greg Hutchings, a prominent corporate raider of the 1980s, will stay on as chief executive, giving up the role of chairman to David Newlands, a former finance director at GEC.

Newlands denies the board changes were the consequence of pressure from shareholders concerned about Tomkins’ recent poor performance. But he admits: `Greg was too thinly spread before these changes and it was asking too much for any individual to do all that he was doing.’

The stock exchange reacted favourably to Newlands’ appointment. Tomkin’s shares, which recently hit a nine-year low of 149p, jumped 13.5p to 214.75p on the day of the announcement.

Nick Hislop, an analyst with merchant bank Dresdner Kleinwort Benson, says: `There have been strong tensions between shareholders and management for some four years now. The shareholders felt they were not being listened to by the board and most recently profits have stalled with little growth in Tomkins’ underlying businesses.

`Hutchings is going back to doing what he has always done best – managing the company on a day-to-day basis – while Newlands, who was respected at GEC, will take a more strategic role.’

Conglomerates have not been popular with investors since the late 1980s. Such companies, it was argued, offered no real gains despite their varied investments. Bureaucratic muddle was a common criticism, and multiple conglomerate headquarters were seen as generating unnecessary costs. In part, Tomkins’ recent share price problem is a reflection of that widely-held view.

Speculation about the future of Tomkins began to grow after it bought foods group Rank Hovis McDougall in 1992, an unlikely stablemate for firearm maker Smith & Wesson, and which inspired the `buns to guns’ tag. Consumer-branded products were not seen as Tomkins’ strongest suit, and after years of poor share price performance the group was forced to announce in 1999 that it would break up.

The sale of RHM has not gone well. Tomkins originally wanted £1.75bn for a clutch of brands, which include Hovis, Sharwoods ethnic foods, Bisto gravy and Mr Kipling cakes. The only known potential buyer so far is investment company Doughty Hanson, which is believed to be offering in the region of £1.5bn.

The group has also been trying to sell its other non-core businesses for the past few years. Last month Red Wing, the US-based grocery labelling business, was sold for £88.3m. More disposals are expected to follow soon. These are likely to include Tomkins’ professional garden and leisure products division.

Even the guns seem destined to go at some point. Tomkins announced last week that it would sell off Smith & Wesson, a company which has become increasingly vulnerable to litigation in the US from the alleged victims of its products.

Newlands’ appointment is expected to herald an increase in the rate at which subsidiaries are sold, and a renewed focus on Tomkins’ core businesses. Ultimately, this could mean the group having just two US-based divisions – industrial and automotive engineering, and construction components.

The first produces windscreen wipers under the Trico brand, as well as valves, controls, filler caps and lubrication products. The second manufactures glass-fibre and acrylic baths, pipe fittings and glass-fibre panels, as well as materials handling systems.

These are not perhaps the most fashionable sectors to be in right now, but shareholders may well feel relieved that at last Tomkins can focus on what is has typically done best.